Technology and the Evolution of the Markets
Ahead of Nasdaq’s 50th anniversary, President and Chief Executive Officer Adena Friedman reflected upon how the capital markets ecosystem has evolved, emphasizing the influence of technology and incredible growth in the size and scale of markets. Looking ahead to the next half-century, Friedman thinks that markets will continue to serve as “a critical center” and is optimistic that technologies, such as the cloud and machine learning, can further connect markets around the world.
“I think that it changes the way that the world thinks about itself—the global economy versus national economies. In the next 50 years, the economy is going to become a global economy that gives rise to a whole new range of things that exchanges can do together. Those are the types of things I think about over the next year,” Friedman said during a virtual discussion with John Williams, president and CEO of the Federal Reserve of New York, hosted by the Economic Club of New York.
As an exchange operator, as well as a technology provider to 130 global markets, Nasdaq’s role is to “maximize access and minimize friction,” she said, allowing buyers and sellers to come together as efficiently as possible while simultaneously maintaining the integrity of markets and ensuring they are fair and balanced. Given the volatility at the onset of the pandemic and the turmoil in recent weeks, Nasdaq has increasingly looked to the cloud to provide a low-latency environment with the ability to scale on demand.
“The cloud is meant to create almost infinite scalability,” Friedman said. “A big part of our journey to advance our technology into the cloud. As a market operator, most of our surrounding systems and other services are cloud-based today.”
“I also think that machine learning is a phenomenon that's just getting started,” she continued. “If you think about the theory of efficient markets, if everyone has the ability to come up with an infinite number of circumstances, and you can model them down and find the best path in the market at any given time through machine learning algorithms, you have the ability to create perfectly efficient markets, theoretically.”
Friedman acknowledged that Nasdaq is already incorporating machine learning into its real-time surveillance technology for the markets. “A big part of who we've always been and who we are is to protect the integrity of the capital markets. That's a big role that we play as a self-regulatory organization and as a technology provider,” she said, which is why Nasdaq’s recent acquisition of anti-financial crime management solutions provider Verafin was a “very natural” expansion in this space.
Homing in on the more immediate future, Friedman stressed the need for Nasdaq to continue to be resilient and meet the needs of the markets in a very fast-moving environment. She noted that Nasdaq welcome 316 initial public offerings (IPOs) in 2020, the most in over a decade, as the markets rebounded in the second half of the year—and that momentum has continued into the new year.
In particular, Special Purpose Acquisition Companies (SPACs) have made a resurgence. Friedman cited several reasons as to why companies might prefer to go public via SPAC, including that an acquisition is typically faster than a traditional IPO, selling investors in a private company get certainty of price, and companies get a qualified group of investors or managers who can help navigate the public markets from a management perspective.
“When it comes to SPACs, I think that the important thing to think about is how are investors protected,” she said. “They're protected in multiple ways. Number one, they put their money into this shell, and they can always sell if they just need their money out before they populate. Number two, there's a defined period of time that the management team has to find and populate the SPAC, or else the SPAC expires. Number three, the investors get to vote on the company they are bringing into the SPAC, and so they have more control over that.”
While Friedman recognized that more investor protection measures have emerged during her 25-year tenure at Nasdaq, she still urged investors to educate themselves and “keep everything into context and think about diversification as a general as part of their strategy.”
“We [want to] maximize the number of buyers and sellers that are available in the market,” Friedman said. “The entire purpose of Nasdaq has been and always will be to democratize access to the markets.”
Other Topics
Markets Cloud Computing US Markets
MarketInsite
Nasdaq
Nasdaq’s Marketinsite offers actionable insights on a variety of market-moving topics. Learn from our thought leaders who are driving the capital markets of tomorrow.
Read MarketInsite's Bio